Tax Reform May Be The Best Energy Plan Of All

Over the past several years, members of Congress, citizen panels and business associations have proposed major reforms to the federal tax code. These disparate groups all agree that our tax system is broken and needs to be overhauled, not tweaked. Unfortunately, political gamesmanship has stalled reform efforts.

Energy taxation is a classic example. The tax package proposed late last year by former Sen. Max Baucus, D-Mont., then the Senate Finance Committee chairman, would increase the tax burden on American oil and gas companies by an estimated $46 billion over the next decade by eliminating "unnecessary tax breaks for hugely profitable Big Oil companies."

But what Baucus took aim at were not "tax breaks" or "subsidies," as President Obama likes to call them, but cost recovery measures that are available to most other industries.

In February, a comprehensive tax reform plan was released by House Ways and Means Committee Chairman Rep. Dave Camp, R-Mich. His bill would repeal "last in, first out" accounting practices and the percentage depletion deductions for energy producers.

Still, the House proposal includes many positive policy changes, such as lowering U.S. corporate tax rates — among the world's highest — and moving to a "territorial" tax system that would reduce taxes on repatriated earnings.

Sensible tax reform can spur investment, jump-start job creation and improve the competitiveness of U.S. companies. It shouldn't discriminate against specific industries to score political points.

For example, it is often argued that oil and gas companies don't pay their fair share of taxes, but this is not the case.

According to the Treasury Department, the average federal corporate tax rate varies from a low of 14% for utilities to 31% for construction. A recent study by the New York Times finds that energy companies pay an average of 37% of earnings in federal, state and local corporate income taxes, while the S&P 500 pays an effective average rate of 29.1%.

Despite the heavy burden of taxes, the domestic energy industry has stepped up investing and hiring. Late last year, the Progressive Policy Institute in Washington released its U.S. Investment Heroes report, which showed that eight of the top 25 capital investors in 2013 were energy companies.

These eight companies invested $56 billion in plants, property and equipment in the U.S., almost 40% of the total $150 billion invested by the top 25. ExxonMobil alone invested more than $12 billion.

Thanks to these investments, America is now the No. 1 oil and gas producing nation on the planet.

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